Final

Question 1

Occurs when a business amalgamates with a firm operating in an earlier stage of production. Example: a car manufacturer acquires a supplier of tires or other components

Answer 1

Backward vertical integration

Question 2

Are businesses that provide a diversified range of products and operate in an array of different industries

Answer 2

Conglomerates

Question 3

Are the cost disadvantages of growth. Unit costs are likely to eventually rise as a firm grows due to a lack of control, coordination and communication

Answer 3

Diversification

Question 4

High risk growth strategy that involves a business selling new products in new markets

Answer 4

Diversification

Question 5

Refer to lower average costs of production as a firm operates on larger scale due to gains in productive efficiency

Answer 5

Economies of scale

Question 6

Occurs when a business grows by collaborating with, buying up or merging with another firm

Answer 6

External growth (or inorganic growth)

Question 7

Growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process. Example: a book publisher merges with a book retailer

Answer 7

Forward vertical integration

Question 8

Refers to an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its name in return for a fee and regular royalty payments

Answer 8

Franchise

Question 9

Growing integration and interdependence of the world’s economies, causing consumers around the globe to have increasingly similar tastes and habits

Answer 9

Globalization

Question 10

External growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production.

Answer 10

Horizontal integration

Question 11

Occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue

Answer 11

Internal growth (or organic growth)

Question 12

Growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise

Answer 12

Joint venture

Question 13

Refers to merges and acquisitions between firms that have similar operations but don’t directly compete with each other

Answer 13

Lateral integration

Question 14

Form of external growth where two (or more) firms agree to form a new organization, thereby losing their original entities

Answer 14

Merger

Question 15

Organization that operates in two or more countries, with its head office usually based in the home country.

Answer 15

Multinational company (MNC)

Question 16

Is the most efficient scale of operation for a business which occurs at the level of output where average costs of production are minimized.

Answer 16

Optimal level of output

Question 17

Is the cost per unit of output

Answer 17

Average cost (AC)

Question 18

Are economies of scale that occur inside the firm and are within its control

Answer 18

Internal economies of scale

Question 19

Are cost-saving benefits of large scale operations arising from outside the business due to its favorable location or general growth in the industry

Answer 19

External economies of scale

Question 20

Technological progress, improved transportation networks, skilled labor and regional specialization

Answer 20

** examples of external economies of scale **

Question 21

Are the result of higher costs as a firm increases in size. They usually occur due to management problems and inefficiency.

Answer 21

Internal diseconomies of scale

Question 22

Communication problems, lack of control, poor working relationships and bureaucracy

Answer 22

** examples of internal diseconomies of scale **

Question 23

Refer to an increase in the average costs of production as a firm grows due to factors beyond its control

Answer 23

External diseconomies of scale

Question 24

Increasing market rents, higher wages and financial rewards, traffic congestion

Answer 24

** examples of external diseconomies of scale **

Question 25

Brand recognition, brand reputation, value-added services, lower price, greater choice and customer loyalty

Answer 25

Benefits of large organizations

Question 26

Cost control, financial risk, government aid, local monopoly power, personalized services, flexibility and small market size

Answer 26

Benefits of small organizations

Question 27

Control and coordination, inexpensive, corporate culture, less risky

Answer 27

Advantages of internal growth

Question 28

Diseconomies of scale, restructure, dilution of control and ownership, slower growth

Answer 28

Disadvantages of internal growth

Question 29

Faster way to grow and evolve, quick way to reduce competition, greater market share and power, spread of risks

Answer 29

Advantages of external growth

Question 30

Occurs when a company buys a controlling interest in another firm. It buys enough shares in the target business to hold a majority stake

Answer 30

Takeover (or acquisition)

Question 31

Greater market share, economies of scale, synergy, survival and diversification

Answer 31

Benefits of mergers and acquisitions

Question 32

Redundancies, conflict, culture clash, loss of control, diseconomies of scale, regulatory problems

Answer 32

Disadvantages of mergers and acquisitions

Question 33

Synergy, spreading of costs and risks, entry to foreign markets, relatively cheap, competitive advantages, exploitation of local knowledge and high success rate

Answer 33

Advantages of joint ventures (JV)

Question 34

Is similar to a joint venture in that two or more businesses cooperate in a business venture for mutual benefit but the affiliated businesses remain independent organizations

Answer 34

Strategic alliance (SA)

Question 35

Rapid growth of the company, national or international presence, royalty payments

Answer 35

Benefits for the franchisor (person who sells the franchise)

Question 36

Low risk, lower start-up costs, supply of added-services, large scale advertising and greater awareness of local market

Answer 36

Benefits for the franchisee (person who buys the franchise)

Question 37

Damage of the reputation of the whole franchise, difficulty in controlling daily operations of franchisees, is not a quick way of growth

Answer 37

Disadvantages for franchisor

Question 38

Expensive, royalty payments and constrain of entrepreneurial talents

Answer 38

Disadvantages for franchisees

Question 39

Competition, customer expectations becomes increasingly demanding, increased customer base, economies of scale, greater choice of location, external growth opportunities, increased sources of finance

Answer 39

Opportunities and threats of globalization

Question 40

Organization that operates in two or more countries with regional head offices rather than a single international one

Answer 40

Transnational corporation

Question 41

Increased customer base, cheaper production costs, economies of scale, protectionists policies and spread risks

Answer 41

Advantages of MNCs (multinational companies)

Question 42

Any nation that allows a multinational company to set up in its country

Answer 42

Host country

Question 43

Creation of jobs, boost in gross domestic product (GDP), introduction of new skills and technology and competition

Answer 43

Advantages of host countries

Question 44

Unemployment, profits are repatriated, social responsibility, competitive pressures and takeover bids

Answer 44

Disadvantages of host countries